Little Sequester Effect Seen in Employment Report

Government cutbacks may soon weigh on America’s job market, but so far signs of a drag are few.

The Labor Department in its monthly snapshot of the U.S. jobs picture on Friday said government jobs shrank by 11,000, slightly less than the 16,000 jobs lost in March. The number of unemployed government workers has actually dropped to 715,000 from 786,000 in April 2012, lowering their unemployment rate to 3.3% from 3.7%. Roughly three-quarters of the decline in government jobs in April came from the federal government.

Associated Press

For months, economists have worried federal budget cutbacks — the “sequester,” in Washington lingo — could weigh on the job market and broader economy. Cutbacks kicked off March 1, but furloughs of government workers began in April — and while those furloughs don’t mean lost jobs, they could keep government employers from hiring. Beyond government jobs, federal cutbacks mean fewer government contracts for firms in the private-sector like, say, those in the defense industry.

So far, though, the public and private job markets seem to be holding their chins up.

Friday’s report showed the unemployment rate falling to 7.5% from 7.6% and the economy adding an encouraging 165,000 jobs. Figures for the previous two months were also revised up by 114,000 jobs. Retailers added 29,000 jobs, while the leisure and hospitality industry (restaurants, for example) added 43,000. There were also 31,000 new temp jobs, a sign that employers may add more workers in the coming months but are straddling the fence, though job growth in construction and manufacturing was snuffed out by bad weather and global economic troubles, respectively.

“Employment growth has not rolled over in the face of the fiscal tightening, presumably because the strength of the large corporate sector is enough to offset the continued weakness of small businesses,” says Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisors.

One place the sequester may be showing up is in hours. The average hours worked ticked lower this month, and many of the furloughs are reducing the workweek, not necessarily straight layoffs. However, the move downward could also be the result of the timing of the Easter holiday and weather, which plays havoc with these data.

April’s encouraging jobs report followed news this week that the number of Americans filing initial claims for unemployment insurance hit a new five-year-low. That suggests employers aren’t shedding workers, whether they’re hiring or not.

It may simply take time for the effect of government cutbacks to show up. “The full impact … will be absorbed over the next few quarters,” warns Jim Baird, chief investment officer of Plante Moran Financial Advisors. “Continued improvement in labor market conditions will likely be the sole responsibility of the private sector.”

But that’s just it: If the economy picks up steam in the second half of the year as many economists expect — and especially if the recovering housing market brings more jobs — private-sector job growth could outweigh the dreaded effects of the sequester.

About Real Time Economics

Real Time Economics offers exclusive news, analysis and commentary on the U.S. and global economy, central bank policy and economics. Send news items, comments and questions to the editors and reporters below or email realtimeeconomics@wsj.com.